I would strongly suggest the Virtualization route. There are many good free desktop virtualization programs out there, including VMWare Player (need a VM already created though), Microsoft VirtualPC, VirtualBox, and XenDesktop (though I never used this last one personally). My personal suggestion is Microsoft VirtualPC (believe it or not) as it seems to have the most features and is reasonably lightweight (comparatively). Now if you are willing to spend the money, VMWare Workstation beats them all hands down, but it is ~$200 USD in the U.S. for the Windows version.
Just a note of warning though - While this class of virtualization software is useful, especially for sandboxing and doing state snapshot & recall; as a class, they are very resource hungry. You are running a complete OS inside your current OS! You need to have enough disk space and Nemory to run ALL VM's w/ running programs IN ADDITION TO THE UNDERLYING OS. In my experience using VMWare Workstation, a 2.2GHz Intel processor (single core) w/ 3GB of DDR2 memory and 100GB disk space running on an XP Pro SP2 machine w/ typical business setup (e.g. NortonAV & Intel Landesk running on it), could barely handle running 3 linux virtual machines at the same time (Ubuntu, Kbuntu, & Xbuntu, version 6, were my test machines at the time). Any more than one machine running in a VM was horribly slow on this system and completely unusable in a business environment (though perfect for my playing around). Memory was generally the constraint if you are curious. However, with the knowledge of these caveats, I feel this would be an ideal use of this technology.
